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Chapter 4: Q.11 (page 104)

Select the correct answer. A price floor will usually shift: a. demand b. supply c. both d. neither Illustrate your answer with a diagram

Short Answer

Expert verified

Neither

Step by step solution

01

Step.1 Introduction

A price floor is a lower limit imposed on the price of a productby the governemtto protect the sellers in the market. A consumer cannot purchase at a price lower than this limit.

02

Step.2 Explanation

A price floor does not causes any shift in the demand curve or the supply curve. However, a binding price floor can cause a movement on the demand and supply curves. At a price higher than the equilbrium level, the quantity demand would be lower than quantity supplied causing a surplus.

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Most popular questions from this chapter

In the labor market, what causes a movement along the supply curve? What causes a shift in the supply curve?

If the government imposed a federal interest rate ceiling of 20% on all loans, who would gain and who would lose?

Table 4.6 shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? How can you tell? Now, imagine that because of a shift in the perceptions of foreign investors, the supply curve shifts so that there will be $10 million less supplied at every interest rate. Calculate the new equilibrium interest rate and quantity, and explain why the direction of the interest rate shift makes intuitive sense.

Interest rateQsQd
5%130170
6%135150
7%140140
8%145135
9%150125
10%155110

Table 4.6

Why is a living wage considered a price floor? Does imposing a living wage have the same outcome as a minimum wage?

Are households demanders or suppliers in the

goods market? Are firms demanders or suppliers in the

goods market? What about the labor market and the

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